Why the cold storage market is no longer as hot

The cold storage market has cooled somewhat since our last outlook in 2022. Still dealing with the COVID-led supply/demand disruptions at the time, the market has continued to shift. For one, the boost to the market during COVID from a sudden, large spike in demand from the pharmaceutical sector to store vaccines and supplies has subsided. For another, the strain on Canadian household spending due to inflation the last two years has meant that, for many consumers, fresh food is no longer as viable an option as it was earlier. Sales of canned food are growing.

On the plus side, the market is still strong and growing, supported by merger and acquisition activity as well as new construction projects. And the addition of 2.5 million more people over the last four years, thanks largely to immigration, means more mouths to feed and more storage needed to house the growing stockpiles of food. The same economic drivers that have prompted more canned food purchases are also spurring greater consumption of frozen goods.

Pandemic growth in refrigerated capacity continues post-COVID

The trend we noted in 2022 in the construction of new facilities or refitting existing facilities has continued since then, although perhaps at a slower pace. New build projects and expansions have taken place in Atlantic Canada and the Greater Toronto Area, despite steep, and growing, construction/refitting costs per square foot. Costs vary, depending on location, height of building, racking system, whether it’s a cooler vs. freezer facility, etc., but a realistic range runs from the high $200s to $400+ per square foot. They’re impacted too by the lack of available unimproved land on which to build and customize additional spaces.

Those overhead costs continue to be a burden to entrants new to, or those trying to break into, the cold storage space. Even then, the sector is expected to grow over the short- and long-term, with some industry analysts forecasting between 3.5% and 4.4% compound annual growth rate (CAGR) to 2030 to a value of US$3.1 billion in Canada. The U.S. cold storage sector is expected to grow faster, at a 14.4% CAGR to a value of US$409.4 billion by 2032.

Demand for chilled/cooler space (not frozen) grew during COVID as consumers increased the demand for fresh food, and, while that has continued post-COVID, freezer facilities remain an important space in the overall cold storage market. The biggest boost to the sector comes from the food and beverage sectors, its largest consumers. Growing alongside that are the sectors involved in cold chain logistics (the warehousing and distribution of chilled and frozen goods). This sector is seeing increased demand made possible by developments in preservation techniques and the efficient means of transportation over long distances. That means a lot for a world hungry for more protein and, specifically, animal protein. As more people around the globe shift from a carbohydrate-based diet to one featuring more protein, cold chain logistics will grow in importance.

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